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TORONTO — Almost from the beginning, the trial involving three of Nortel’s most senior financial executives has played out in a most unusual way.

Usually it’s the Crown that presents a tight case, surrounded by acres of supporting evidence.

But in this trial it’s the defence lawyers who have been suffocating Judge Frank Marrocco with document after document.

So it was on Thursday, as defence lawyer Harry Underwood submitted Deloitte partner Don Hathway to an excruciating cross-examination about events that occurred in 2002 and 2003.

Accounting giant Deloitte had audited Nortel’s books for much of the previous century, and Hathway assumed the role of chief U.S. partner on the Nortel account starting early in 2003.

That was a critical year because Nortel was moving from a period of deep financial losses to a small profit.

It was a significant transition in accounting terms because it meant even relatively small transactions had the potential to be material, to create a profit or a loss.

Hathway had spent nearly seven years auditing the books of Nextel, a U.S. wireless communications carrier, but moved to Nortel as part of a regular rotation.

The U.S. Securities and Exchange Commission, which regulates the securities industry, prefers not to see independent auditors get too comfortable with the clients they are auditing.

But occasionally moves like this can also create grief if personalities clash too much. So it seemed at Nortel in 2003.

For much of Thursday’s court session, Underwood guided Hathway through a series of documents showing that his predecessors at Deloitte had regularly monitored the accounting entries the Crown alleges were fraudulent. The Crown’s theory is that the co-­accused — CEO Frank Dunn, chief financial officer Doug Beatty and controller Michael Gollogly — deliberately overstocked Nortel’s balance sheet with reserves (also known as accrued liabilities). It’s alleged the trio manipulated these entries to transform losses, in the first and second quarter of 2003, into profits — along the way, triggering rich executive bonuses.

Underwood showed Hathway Deloitte working papers and emails from 2002, many addressed to more than 20 Deloitte auditors. They suggest more than casual familiarity with the most important reserves, including those associated with Nortel’s downsizing, long-term contracts, warranty provisions, vacations, legal battles, product credits and allowances for doubtful accounts.

“I don’t know, I wasn’t there in 2002,” Hathway said repeatedly in response to questions about the meaning of what was in these documents. Underwood knew that, of course. His apparent intent was to establish that the working relationship between Nortel and its external auditor Deloitte had long been professional and featured regular debates about how to solve complex accounting issues.

Underwood was trying to undermine Hathway’s testimony from earlier in the week. Under questioning by Crown prosecutor Robert Hubbard, Hathway asserted that Nortel’s senior management booked too many provisions and that he argued with Dunn in particular on several key applications of accounting policy. For instance, Hathway testified that he believed Nortel should book a reserve for a future liability only if management judges there is at least a 70 per cent probability that the event — such as resolution of a dispute over contract — could happen. Hathway said he argued the point with Dunn, although the relevant accounting standard (known as FASB-5) specifies only that the event be “probable”.

Hathway also testified he and Dunn engaged in lively exchanges over the question of whether Nortel should have maintained a $3-billion tax asset on its books. Such an asset could be applied only against future profits, and Hathway did not believe it likely Nortel would achieve them. Hathway acknowledged under cross-­examination Thursday that even the U.S. Securities and Exchange Commission had been satisfied with Nortel’s supporting documentation on the asset.

Although it’s not unusual for external auditors to argue with their clients about the proper treatment of accounting entries, Hathway’s relations with Nortel’s top financial executives were rocky enough that Nortel’s audit committee recommended re-assigning him after less than one year. Just how much of this was the product of personality or a highly stressful period in which Nortel was shrinking by more than half — and fighting for its life — is not known.

What is clear is that Hathway and his Canadian counterpart on the Nortel file — and their predecessors — repeatedly signed off on the accounting entries the Crown alleges were fraudulent. Hathway testified that Deloitte in 2004 repudiated some of its conclusions about Nortel’s numbers because an independent investigation by Washington law firm Wilmer Cutler (now WilmerHale) found evidence “that raised the potential of earnings management.”

Wilmer Cutler had been hired by Nortel’s audit committee to provide a second opinion on the company’s numbers. The context was a 2003 re-statement that emerged after Nortel’s managers discovered accounting errors in the wake of the firm’s massive restructuring. Wilmer Cutler’s investigators studied dozens of hard drives at Nortel headquarters but — based on a public summary of the Washington firm’s conclusions — found no fraud.

Just what was so persuasive about Wilmer Cutler’s presentations to Deloitte early in 2004 is not known. But if it turns out to have involved a difference of opinion with Nortel about equally legitimate accounting transactions, then the tale of Nortel’s demise will have acquired an even deeper layer of sadness.

On Tuesday, Underwood is scheduled to resume his cross-examination of Hathway. Later the same week, the witness portion of the trial could conclude with an appearance by Crown witness John Cleghorn, the chairman of Nortel’s audit committee. It’s possible one other expert witness will be called, after which the trial will break for the summer. Judge Marrocco is expected to hear closing arguments in September and render a judgment later in the year.

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